Glossary

Account debtor

The account debtor is the individual or legal entity, either Italian or foreign, that entered or will enter into commercial dealings with the invoice seller and is therefore obliged to pay the supplier one or more receivables.

Auction

Italy’s Economy Ministry places Italian government bonds (BoT, CcT, BTp, CTz) on the market by means of an auction in which only qualified market participants can take part directly, submitting bids via an electronic system. In the past, bids used to be submitted in sealed envelopes: the electronic channel was set up only in 1994.

Bad bank

A bad bank is an entity set up in order to receive (by contribution or transfer) distressed debts. A bank sets up a new entity in which it owns a controlling interest. Part of the bank’s receivable portfolio is transferred to the new entity. The receivables transferred are distressed, toxic, or non-performing; this is why the new entity is called a bad bank.

Bad loans

On- and off-balance-sheet exposures to a party in default (even when not confirmed in judicial terms) or in a substantially similar situations, regardless of losses estimated by the bank.

Bail-Out Fund

The European Financial Stability Facility (EFSF, which the media call the Bail-Out Fund) is a Special Purpose Vehicle created by twenty-seven EU Member States on 9 May 2010 in the wake of the 2008 – 2010 economic crisis for the sole purpose of giving financial help to the Member States, thus preserving the financial stability of the Euro-zone under economic stress scenarios. Formally, it is a company set up under Luxembourg law and based in Avenue John F. Kennedy 43 in Luxembourg. Its current President is the German Klaus Regling.

As from July 2012, it was replaced by the European Stability Mechanism, with the provision that financial assistance to insolvent countries is conditional on the participation of the private sector (the so-called bail-in).

Book value per share

Book Value per Share (BVPS) is a measure of equity expressed in monetary terms with reference to each share. It is calculated by dividing the book value of equity by the number of outstanding ordinary shares.

Buffer

The capital conservation buffer is aimed at ensuring that during periods of calm banks accumulate capital reserves they can use to absorb losses incurred. The requirement is based on simple provi-sioning rules designed to comply with minimum capital ratios.

Buoni del Tesoro Poliennali

BTPs (Italian long-term treasury bonds) are issued with 3-, 5-, 10-, 15- and 30-year maturities. They are medium/long-term bonds best suited for investors who want to receive regular payments every six months.

Business Continuity

Business Continuity refers to the ability to ensure that critical business functions continue to operate or are restored as soon as possible in case of internal or external disruptions.

Capitalisation

It refers to the market value of a company’s shares and is calculated by multiplying the number of shares by their market price, which can differ even significantly from the par value. Capitalisation is an important measure for listed companies because it tends to be associated with the stock’s level of liquidity. This is mainly because most stock indices attribute greater weight to larger-capitalisation companies.

Carry trade

It is used to boost the rate of return of a financial transaction by correlating the level of interest rates to exchange rates. The investor borrows in a country with a low cost of money and invests in one with high interest rates. In the case of government bonds, “carry trade” indicates the use of liquidity acquired by banks thanks to the ECB’s auctions. These resources allow the banks to carry trade government bonds: money borrowed at 1% is used to buy bonds (BTPs with 2-, 3- or even 10-year maturities), earning the difference between the higher yield and the cost of borrowing.

Cassa Compensazione e Garanzia

Cassa di Compensazione e Garanzia (CC&G) is an Italian Joint-Stock Company owned by the London Stock Exchange Group. It ensures trades relating to listed securities and transactions in futures and options, as well as on the NEW MIC — the collateralised interbank market — are properly cleared and settled. Therefore, CC&G eliminates counterparty risk, acting as buyer vis-à-vis the seller and vice versa, and thus ensuring trades are successfully completed.

CDS

Credit default swaps (CDSs) are financial instruments that act as insurance policies. By paying a premium, any institutional investor can insure itself against the default of a state or a company: in the case of default, whoever has sold CDSs (i.e. the policy) must compensate the loss by reimbursing the whole capital to the investor. Therefore, CDSs are instruments that offer purchasers protection on their investment. This is why the restructuring of Greece’s debt has created problems: since Greece did not formally default, CDSs were not triggered.

Chirographary (unsecured debt)

The word chirographary derives from Greek “chiros-graphos”, where “chiros” means hand and “graphos” means writing. It means that the loan derives from a formally signed document. With reference to receivables, this expression is used to indicate a loan that is not backed, for example, by a mortgage, but only by the debtor’s word.

Collateral

Securities a borrower pledges with a lender to obtain a loan. Should the loan not be repaid, the collateral is transferred to the creditor. The ECB, for example, accepts bonds as collateral for the purposes of its refinancing operations. Essentially, banks obtain loans from the European Central Bank and pledge debt securities.

Common equity

Common equity consists of share capital plus reserves and is considered the highest quality component of a bank’s capital. Basel 2, which sets higher capital ratios for banks, requires that half the Tier 1 capital consists of common equity. The other half is of similarly high quality compared to the other components of the capital structure, although not in the same class as ordinary shares or retained earnings.

Corporate bond

Debt securities issued by companies in order to raise money to fund their growth. The term usually refers to debt securities with long-term maturities or instruments that normally generate constant interest income for a number of years, with medium or long-term maturities. Corporate bonds are generally offered through direct placement through Italian financial institutions (banks and financial planners) or secondary markets. This instrument is best suited for investors wishing to set aside their capital and protect it against inflation, with medium to low risk appetite.

Cost/income ratio

Ratio of operating costs to net banking income. It is one of the main indicators of the bank's operating efficiency: the lower its value, the higher the bank's efficiency.

Cost of credit quality

The cost of credit quality expresses the quality of loans to customers and is calculated as the annualised ratio of impairment losses on receivables to the average of receivables due from customers: the lower the ratio, the milder the effects deriving from the risk profile of the bank's loans.

Credit insurance

Credit insurance allows companies to reduce or transfer the risks of default of their customers and to transform them into opportunities to grow. Entrepreneurs can cover (total or partial) losses on receivables, receiving also the following benefits: support in the process of assuming and managing trade receivables; preliminary assessment of his/her customers’ solvency; a constant monitoring service; compensation for losses incurred; and debt collection services.

Credit watch/ Under review/ Rating watch

For Standard&Poor’s, a credit watch indicates a likely, imminent downgrade of a sovereign debt’s rating, with at least a 50% chance that it will be cut within 90 days. The same concept is indicated by Moody’s using the expression “rating under review” and by Fitch as “rating watch”. It is a short-term warning, focused on events that can cause a rating to be monitored particularly closely.

Debt agency

In several Euro-zone countries, but not in Italy, the management of public debt is entrusted to a dedicated structure. Germany, France, and Spain have set up public debt agencies which operate in compliance with the guidelines issued by their respective Economic Ministries. The level of specialisation of the agencies’ staff is very high. In some countries, the creation of bodies independent from the ministries allowed to directly recruit “public” operators from big banks – offering them appropriate remuneration packages – to manage auctions, buy-backs, derivatives, and liquidity on behalf of the State. The agencies are transparent and dedicated to disclose information to the markets.

Deleveraging

Deleveraging is the reduction of financial leverage, i.e. the divestment carried out by repaying accrued debt with available liquidity or selling financial assets held to raise cash.

Disaster recovery

In IT, and specifically in IT security, disaster recovery means the set of technological and logisti-cal/organisational measures aimed at restoring systems, data and infrastructure needed to deliver business services in the face of severe emergencies disrupting their normal operation.

Dividends

Dividends are profits which a company decides to distribute to its shareholders at the end of each year, as remuneration for invested capital. When companies pay out dividends, however, their share price falls

Dividend yield

The dividend yield (the dividend/price ratio) is the ratio between the most recent dividend per share paid to shareholders or announced and the stock’s most recent closing price. It is used as an immediate yield indicator, independent of the share price performance.

Downgrade

It is a term used when a ratings agency revises down, i.e. lowers, the credit rating, i.e. the measure of the ability of an issuer of shares and bonds to timely meet its obligations. Such a downgrade is possible for both private companies and government bodies, which will pay more for the money they want to borrow on the market after they have been downgraded. The debt crisis in the euro-zone set off a series of downgrades of countries that adopted the Euro. It started with Greece in early 2010, then in 2011 also Portugal, Ireland, Spain, Italy, Cyprus, France and Austria saw their rating downgraded; only Germany, the Netherlands, Finland and Luxembourg maintain their triple A-rating in the Euro-zone.

Duration

Duration is a synthetic measure of the speed with which invested capital will be repaid. Normally, a longer duration is accompanied by a greater financial risk for the security: therefore, should there be a significant risk that the issuer will default, it is important to consider this indicator, as a change in rates is accompanied by a fluctuation in the price. The longer the security's duration, the sharper the fluctuation.

EBA

The European Banking Authority is a body of the European Union based in London that as from 1 January 2011 has the duty of supervising the European banking market. It has legal status and its primary objective is to protect the public interest, contributing to the stability and effectiveness of the financial system to the benefit of the EU economy.

All the EU banking supervisory authorities take part in the EBA. The Authority, which replaced the Committee of European Banking Supervisors (CEBS), must protect the public interest and the stability of the financial system.

ECB deposits or Deposit facility

European banks can deposit their liquidity overnight at the so-called ECB deposit facility. By doing so, the banks receive a very low rate compared to the interest they could earn by placing it on the market. The fact that during 2011 deposits reached a record level showed that banks were afraid of investing their liquidity on the market.

EFSF

The EFSF is the European Financial Stability Facility created by Euro-zone countries. The initial lending capacity of 255 billion Euro has been increased to 440 billion Euro. The Fund can issue triple A-rated bonds (or other instruments guaranteed by euro-zone countries) to finance struggling sovereigns.

Eligible assets

For the purposes of the Eurosystem’s refinancing operations, eligible assets are securities that meet the European Central Bank’s eligibility standards for assets used as collateral to obtain liquidity. The list of eligible assets is published on the ECB’s website and is updated several times each month.

EPS

A measure of the earnings a company generated in proportion to the number of shares issued by said company. It is calculated as the ratio of net profit to the average number of outstanding issued shares net of treasury shares.

ESM

The ESM (European Stability Mechanism) is the Euro-zone’s financial assistance facility. It has a capacity of 650 billion Euro, which will be available to countries in financial distress. The ESM replaced the EFSF, the European Financial Stability Facility created by Euro-zone countries.

ESMA

The European Securities and Markets Authority (ESMA) has been operational since 1 January 2011. It has the duty of supervising financial markets and ratings agencies so as to guarantee the stability of the EU’s financial system. It works closely with two new European authorities, the EBA (banks) and the EIOPA (insurance and pensions). It may suspend the publication of sovereign ratings in limited cases, when one Member State is negotiating a rescue package or when doubts about a country’s solvency suddenly arise. The ESMA, in addition, coordinates the actions of the financial authorities and supervises the emergency measures adopted in critical situations.

Eurosystem

The Eurosystem includes the European Central Bank and the National Central Banks of the EU Member States that adopted the Euro in the Third Phase of the Economic and Monetary Union (EMU). Currently, fifteen national central banks participate in it. It is headed by the ECB’s Governing Council and Executive Board.

Firewall

Term used to define the group of instruments set up by the European Union and other authorities such as the ECB in order to create a safety net and ward off contagion from the debt crisis. It includes, for example, the EFSF and the ESM.

Haircut

In finance, the term indicates the percentage of reduction in the value of a security compared to its par value when it is accepted as collateral. In the discussions regarding turmoil in the Euro-zone, the haircut corresponds to the loss that a bank or investor will suffer on a government bond they hold, should that country’s debt be restructured.

ICAAP

The ICAAP process has the main purpose of making banks ensure their capital is adequate in relation to the risks assumed as part of their operations. To achieve this goal, generally they must adopt a ro-bust corporate governance framework as well as a suitable and clear organisational structure; define and implement procedures to effectively identify, manage, monitor and report risks; and have appro-priate internal control mechanisms in place—all in accordance with the principle of proportionality that governs prudential supervision.

IMF

The International Monetary Fund is an organisation that includes the governments of 187 countries. It was created at the Bretton Woods Conference in 1944. The purpose of the IMF, which is based in Washington, is to ensure financial stability, support monetary cooperation, and promote international trade and sustainable growth.

IMF quotas

Each of the 187 member countries of the International Monetary Fund holds a capital quota based largely on its weight in the global economy. This quota determines the voting power of individual countries, as well as how much they can borrow from the IMF. In order to take account of changes occurred in the world economy since the foundation of the IMF in 1944, the quotas have been periodically revised. In 2012 the latest reform, which was started in 2006, saw emerging countries, including Brazil, India, China and Russia, increase their weight and enter the group of the 10 biggest quota-holders. The biggest individual quota-holder is the USA, with 17,4 per cent.

Impaired loans

Bad, substandard, restructured and past due loans fall under this category pursuant to Bank of Italy’s regulations consistent with IASs/IFRSs (see item).

Interbank fund

Current account deposits, unlike bonds, are guaranteed by the Interbank Deposit Protection Fund. This guarantee was recently reduced from 103 thousand Euro to 100 thousand Euro and protects every accountholder at every bank, regardless of the total number of accounts the saver holds. This means that it is possible to open an unlimited number of accounts with different banks that will all be guaranteed up to the value of 100 thousand Euro.

Italian BOTs (Buoni Ordinari del Tesoro, i.e. treasury bills) and other sovereign bonds are, on the other hand, guaranteed directly by the State: most Italian citizens are now familiar with the concept of the spread, i.e. the differential between Italian BTPs and German Bunds that measures the markets’ confidence in Italy.

Invoice seller

The invoice seller is the factoring contract’s counterparty that pledges to transfer to a factor all the receivables derived or deriving from its business operations conducted vis-à-vis another entrepreneur (account debtor).

Libor

The Libor (London Interbank Offered Rate) is a reference rate in the interbank market. It is calculated daily by the British Bankers Association on the basis of the rates required to grant a loan in a given currency (among others, pound sterling, US dollar, Swiss franc and the Euro).

Liquidity crisis

The financial crisis exposed the relationship between credit, market and liquidity risks (both funding- and market-wise) in unprecedented ways. Before the Greek crisis, European government bonds were considered risk-free. Since the moment the Euro-zone threatened private investors with a haircut (capital loss) should public debts be restructured, government bonds have been considered as a credit risk.

Ltro e Tltro

The Long Term Refinancing Operations (LTROs) are the refinancing operations undertaken by the ECB, which can decide to intervene in the interbank market by lending banks money in two ways: MROs (Main Refinancing Operations), which are ordinary refinancing operations with a maturity of one week, and LTROs. The latter normally have 3- to 6-month maturity, extended in the current situation up to three years. The ECB also undertakes immediate interventions, defined as Fine-Tuning Operations (FTOs), to manage liquidity surpluses or deficits in the interbank market.

Starting in 2014, the ECB launched the “Targeted Long-Term Refinancing Operation” (Tltro), which provides financing to banks on the condition they lend to households and businesses.

Mark to market

Daily revaluation of an investment portfolio on the basis of market prices, as opposed to the process of calculating the value of the portfolio based on the assets' historical acquisition costs. The EBA, the European Banking Authority, requires European banks to mark to market the government bonds they hold. This process sharply penalises Italian institutions, and is therefore strongly contested by the Italian Banking Association.

Mid swap

Mid swap is an interbank rate adopted by banks to swap money, similarly to the better known Euribor. It is the arithmetic mean of the demand and supply of the interest rates the banks offer for each given maturity in order to swap cash on the interbank market.

MTS

The electronic wholesale market for government bonds (MTS) is a platform for trading Italian or foreign government bonds and state-guaranteed securities on the secondary market. The MTS market is reserved for professional investors. Bids may be made for minimum quantities of 2,5 million and depending on the instrument. The MTS is divided into the cash (spot trading), repo (repurchase trading), and coupon stripping (separate trading of strips) segments.

Net exposure

Banks calculate their net exposure to express potential losses once hedging transactions and other forms of risk protection are accounted for. These can include derivatives such as credit default swaps (CDSs) and debt insurance contracts. American banks are disclosing more and more information on their exposure to the European sovereign debt crisis, reporting both gross and net exposure. The effectiveness of some risk protection measures adopted, such as CDSs, is nonetheless debatable.

NEW-MIC

The New MIC is the segment of the e-MID (the electronic market for interbank deposits) dedicated to Euro-denominated deposits with maturities up to a year. It uses the New MIC Guarantee System managed by Cassa di Compensazione e Garanzia. Trades, which are settled in Target2, are carried out anonymously with protection against counterparty risk. The guarantee is provided by the collateral pledged by each member; a mutual insurance scheme, consisting of 10% of the collateral pledged by each member; and the interposition of the CC&G between the counterparties for each trade settled.

Non-recourse factoring

In non-recourse factoring, the seller transfers to the factor a receivable without offering any guarantee should the debtor default. Therefore, the seller guarantees the factor only that the receivable sold exists, and not that the debtor is solvent.

NPL

Non-performing loans are loans on which the borrower can no longer repay the principal and interest due to the lender. In practice, these are loans for which there is uncertainty about whether they can be collected on time and in full. In banking, non-performing loans are also known as impaired loans and are divided into several categories, chief among them substandard and bad loans.

P/E and dividend yield

P/E is the ratio between the market price of a company’s stock and the earnings per share reported in the most recent period. The price/earnings ratio corresponds to the yield on a share: more precisely, it indicates how much time is needed for the earnings arising from it to equal the price paid for its pur-chase. The lower the ratio, the more attractive is the stock.

Past due loans

On- and off-balance sheet exposures, other than those classified as bad, substandard or restructured loans, which are past due or have been overdrawn for more than 90 days as at the reference date.

Pay-out

Pay-out is the distribution of net profits in the form of dividends. In particular, the pay-out ratio, i.e. the ratio between dividends paid and net profits for the year, is widely used in accounting. This indicator represents a company’s strategic choices as to how to fund its investments: the higher the ratio, the lower the share of net profits the company can use to finance its future projects. A company’s net profits can be put to only two uses: be distributed as dividends, thus increasing the pay-out, or be re-tained in the company, increasing its equity and thus the rate of self-financing.

Performing loans

A receivable held by the bank due from customers deemed solvent and therefore able to timely repay their debt as agreed.

Off-the-run

Off-the-run indicates government bonds that are no longer being issued. The Italian Economy Ministry can reoffer these securities through the marginal auction system. The price and quantity are determined by means of a discretionary award system within a minimum and maximum emission range referred to the whole pool of bonds. Conversely, on-the-run indicates bonds planned on the basis of the annual calendar of auctions.

Outright purchases

With outright purchases, the factor entirely assumes the debtor's risk of default: therefore, it does not finance the receivable, but rather purchases it in full. In this case, the amount paid to the invoice seller is not an advance on the consideration, but the outright collection of the credit, and does not therefore represent a liability for the invoice seller.

Overnight index swap

The overnight index swap (OIS) is an agreement between two parties to swap loans at a fixed rate for a set period. This rate reflects that expected on the overnight interbank market for the duration of the swap. It is considered less risky than the Libor.

Rating

The assessment made by a specialist private agency of the creditworthiness of an issuer. Analysts rate corporate bonds, government bonds, individual stocks or entire economic sectors. The rating provides market participants with standardised information on the issuers’ risk profile and is important for investors who cannot independently carry out risk and credit analyses. It is composed of a rating usually expressed on a scale from AAA (the maximum level) to D (the minimum) for bond issuers, and an outlook indicating the analysts’ expectations. Being rated makes it easier for issuers to price and place their securities.

Real yield

Real yield means the return on an investment net of inflation. In other words, investors shall take into account the increase in the cost of living and the reduction in purchasing power when calculating the yield on an investment.

Recession

Recession is an economic cycle characterised by levels of production lower than those that could potentially be achieved by using all available inputs fully and efficiently. Technically, a country enters recession when real GDP contracts and remains negative for at least two consecutive quarters. If stagnation is accompanied by inflation, we talk of stagflation. Conversely, economic growth means an increase in the main macroeconomic variables.

Record date

It is the mechanism introduced in Italy in 2010 aimed at establishing whether or not shareholders have the right to attend the general meetings of listed companies: the record date identifies the moment when the party requesting to participate in the meeting must be registered as shareholder. Those who are registered as shareholders as at the seventh trading day prior to the date of the meeting and have notified their intention to participate via a qualified intermediary are entitled to attend the meeting.

Recourse factoring

In recourse factoring, the seller transfers to the factor a receivable guaranteeing the debtor will repay it. The seller therefore guarantees the factor both that the receivable sold exists and that the debtor is solvent.

ROA

The Return on Assets (ROA) is an indicator that measures the return on the invested capital or the business carried out. It is the ratio between pre-tax operating profit and total assets.

ROCA

The Return on Core Assets (ROCA) is an indicator of the return on the assets dedicated to the core business. It is calculated as the ratio between gross profit minus net earnings on debt securities and total assets excluding debt securities.

ROE

In corporate finance, the Return On Equity (ROE) is a synthetic measure of the company’s operating results. It is calculated as the ratio of net profit to the average of equity.

In order to assess whether a given value of ROE is good or bad, it is necessary to compare it with the yield on alternative investments (BoT, CcT, bank deposits, etc.), i.e. to assess the opportunity cost of investing in the company concerned.

Repurchase agreements

Repurchase agreements (also known as repos) involve the sale of securities together with an agreement for the seller to buy back the securities later from the buyer. The repurchase price is obviously greater than the original sale price. On the repurchase date, the buyer must have the securities available. It is, therefore, a kind of financing transaction, with the return represented by the repurchase spread.

Restructured loans

On- and off-balance-sheet exposures for which a bank, because of the deteriorated economic-financial condition of the debtor, agrees to revise the original terms and conditions, resulting in a loss.

RWA (Risk Weighted Assets)

Risk weighted assets are on- and off-balance-sheet assets (derivatives and guarantees) classified and weighted based on several risk-related ratios, in accordance with bank regulations issued by the supervisory authorities concerning solvency ratios.

Secondary market

The secondary financial market is where outstanding securities can be traded until their maturity. It is the stage following the primary financial market: every security starts in the primary market and, after its issue and placement, moves to the secondary market, where all transactions following the auction are carried out. In other words, the existence of a secondary market ensures that securities can be sold prior to their maturity at market price. Logically, the two markets (which are significantly different in size) are opposites, but they deal with the same products, therefore more liquidity in the secondary market allows for more securities in the primary market.

Shadow banking

The shadow banking system is a network of unregulated market participants acting in parallel to the regulated system, from which it receives securities and other receivables, changing their duration, maturity and liquidity. It then returns them as liquidity available for new transactions.

The shadow banking system is financed through structured derivatives, thus creating liquidity that is in turn invested in long-term assets.

Solvency

Solvency is a debtor's ability to meet its obligations.

Sovereign funds

Public special investment vehicles controlled directly by the governments of the relevant countries and used to invest in financial instruments (shares, bonds, real estate) and other assets. Sovereign funds have been created above all in oil-exporting countries: United Arab Emirates, Qatar, and Norway.

Spread

The word spread indicates a difference or gap. In the case of government bonds, the spread indicates the gap between the yields of Italian and German government bonds, which are considered more reliable. The higher the spread, the higher the cost for the bond issuer, i.e. the State, to refinance its debt. In the medium to long term, high spreads can lead either to sovereign defaults or to drastic cuts in public spending and/or tax hikes to avoid bankruptcy.

Subordinate loan

A loan is subordinate when, should the issuer be put into liquidation, it will be repaid only after all senior debts, but before the share capital. There are two tiers of subordinate loans: LOWER TIER 2 securities represent the most senior subordinate loans. UPPER TIER 2 securities are riskier, since they envisage the possibility (not the obligation) of deferring the interest payment.

Subprime

Subprime mortgages are those granted to borrowers with past credit problems. They are loans to borrowers with no personal guarantees. Subprime mortgages, which US banks used to supply generously despite the poor credit standing of applicants, were granted because the bank immediately transferred the credit risk to the financial market through securitisation, asset-backed securities (ABSs) and collateralised debt obligations (CDOs).

Substandard loans

On- and off-balance-sheet exposures to parties in a temporary state of objective difficulty that can be overcome in a due period of time. Pursuant to the Bank of Italy’s regulations, substandard loans also include the so-called “objective substandard loans”.

Takeover bid

A takeover bid is a public offer aimed at purchasing financial instruments. In the case of Italian companies with shares listed on regulated markets, anyone holding more than 30% of the capital shall launch a takeover bid for the rest of the shares. In the case of crises and corporate restructurings, Consob (the Italian securities regulator) can exempt an investor buying a controlling interest in the company concerned from making a takeover bid for all the shares.

Total receivables

The sum of outstanding receivables purchased by the factor as at a specific date.

Turnover

Turnover is the gross flow of the receivables sold by the customers to the factoring company in a specific period of time (for instance, one year).

Volatility

Volatility is a measure of the variation in price over a defined period of time. It measures the standard deviation of returns on a security compared to the reference market.

Yield curve

The yield curve is the relationship between the interest rates and the maturities of securities. Under normal market conditions, the curve tends to be positive, with long-term rates higher than short-term ones.